Rents in Manhattan

In one of my recent blogposts I discussed the effect of Wall Street’s troubles on demand of rentals as well as for-sale properties.  Per this Fox News report,  rents for 1- and 2-bedroom apartments have already started dropping in Manhattan, while price of studios went up.  This, I believe, points to lessened demand for larger, more expensive housing units, and an increased demand for smaller, less expensive units.  As I discussed in my previous post, many Wall Streeters and other NYC employees may be opting to reduce their lifestyle in the light of general economic malaise / recession, and very possible layoffs.

So if 1-bedroom units decrease in price, and studios increase in price, they just may become equal in price over time.  At which point, renters will move back into 1-bedroom apartments.  To all my renters, I say, get a short term lease for a 1-bedroom (if, in fact, there are deals out there), and go back out hunting for even better deals in 3-6 months.  If they started to drop, I think they will continue to do so.  And then, once you believe the rental market is at the bottom (largely depending on how this recession scenario plays out), lock yourself into a nice permanent low-priced lease (well, low-priced in Manhattan terms, that is).

To all my landlords, current and aspiring… Rack up on low-priced properties over the next year.  There are a ton of foreclosures. There are also a ton of non-foreclosures that have been on the market for quite some time (I think the average is 11 months nationally and 2 months in Manhattan, but don’t quote me on that).  So if you are buying on the island, I would wait until Manhattaners become more desperate to sell, as they are everywhere else.  Even though rents may be decreasing in Manhattan, they will surely go back up: the cultural, intellectual and financial appeal of the Big Apple is hard to beat).  Nationally, rents are up quite a bit, driven by increased demand (because people still have to live somewhere after they lose their homes, and foreclosures are only going up).  So now being a landlord makes more sense than ever: buy cheap, hold for a while, realize appreciation and rent out for cash in your pocket monthly. Perhaps we will see a similar trend towards smaller and cheaper apartments nationally.  So picking up some of those would be good  now.   But also don’t forget that you are buying for the long term, and rents will keep increasing over the years, while your mortgage will stay the same. Which means…  cash flow!!  A good and diversified assortment of properties will keep you well-covered, should demand swing towards smaller units, back to larger units, and whichever way it chooses to go.

Happy renting and landlording!

The Bear, the Condo and the Luxury Rental

No blog post of today would be complete without a reference to the Bear Stearns buyout last night. (JPMorgan had purchased the crumbling financial giant at $2.00 per share, even though it was trading at $4.81 per share right before). This is an astounding event, which brings the already-started carnage of Wall Street appear more and more real. Bear Stearns is a financial giant, a symbol of strength and longevity! And it was brought to its knees by the panic in the credit markets. Things just got a lot more scary and a lot more real. How many other banks will tumble? If the huge Bear was laying growling on its side, what about the smaller banks??

All of this made me wonder about the impact that Wall Street turmoil would have on the City of New York and especially its real estate. Just yesterday afternoon, my boyfriend and I were discussing the current downturn in real estate, and how Manhattan has been largely spared so far (even though property prices have appreciated quite steadily over the years, they still appear steady today, as there is no inventory oversupply). We attempted to answer the following questions: “Is Manhattan headed southward eventually, as business prospects all over the country deteriorate? As we slip further into recession, will Manhattan become an undesirable place to be, as jobs are cut but cost of living takes a while to head south? How long will it take Manhattan real estate prices (sales as well as rentals) to catch up to reality? The very rich will be largely unaffected, most likely. But what about the rest of Manhattan and the other boroughs? Will there be a time in the near future when people will afford to buy / lock in lower rents in Manhattan? Should we head to Florida until this shakes out and then come back and pick up some Manhattan real estate?” We were trying to understand Manhattan real estate cycles, which are a unique animal, very unlike the rest of the country, due to very skewed supply/demand relationships.

Funny thing, the Bear Stearns announcement comes on the heels of this discussion. In my mind the debacle is symbolic of the Wall Street troubles, which are only just starting. During this massacre, what will happen to a city, whose wealth is so closely intertwined with the wealth of Wall Street? So far, it’s been mostly decreases in bonuses on the Street, with some layoffs. But many more layoffs are near. As Bear Stearn employees get laid off, followed by other banks’ employees, what will happen? Will these folks downgrade to cheaper apartments, or will they move to the ‘burbs? Already there was a guy hawking cheaper apartments in front of Bear Stearns today! Will the Street employees sell their Manhattan condos, while prices are still high, and demand from foreign buyers is still strong in Manhattan? Will they rent after they sell? Will they rent in the city or in the ‘burbs? Or will they rent in the other boroughs and Jersey City / Hoboken across the river? And speaking of foreign investors… If New Yorkers’ demand for NYC real estate cools, will the foreign demand be enough to keep it afloat?

As I ponder real estate issues, I read other blogs and articles. So I had come across this video while reading Curbed. An interesting watch, as it gives views for both sides of the coin: Wall St affecting Manhattan real estate vs. not affecting. Arguments are presented by Dolly Lenz of Prudential Douglas Elliman, that the Wall St problems are already built-in to the real estate market, as bonus cuts were anticipated. Hmmm… A collapse of a major financial giant was built-in? The panic that is sure to ensue as a result was built in? I have a hard time believing that all of this will have no impact on the city’s economy and well-being. If much of the City’s growth and economic strength has been driven by Wall Street, wouldn’t it make sense for the Street to take down the City’s real estate premiums? Seems like Dolly is practicing the “hide your head in the sand and enter into denial” approach.

But then again… real estate prices, just like all prices, are a product of supply and demand. And since Manhattan is an island, we can’t build out and increase the supply, except for building upwards. So supply is somewhat fixed. Demand will mostly likely cool down (for rentals and retail sales), due to all the factors discussed above. But will it cool to the levels where it equals supply? Will it cool equally for rentals and sales?

Several major banks are releasing their earnings tomorrow. What gets released tomorrow will help guide my understanding and will help me confirm / rebuff the “many more Bears” theory.